Pentagon wants to absorb overseas ops funding into base budget
Caps not allowed to bite in past; could hinge on House control
Call it “Revenge of the Budget Control Act.” If this year is a feast for the Pentagon with its newly minted budget of almost $700 billion, the next two years threaten famine.The Pentagon has laid out ambitious plans to take on strategic adversaries like Russia and China, grow the Air Force and the Navy, boost lethality, and – at President Donald Trump’s prodding – launch the new Space Force that could have a $13 billion price tag in its first five years by one preliminary Air Force estimate.But those may be impossible under current fiscal 2020 and 2021 budget projections and spending limits set in law. The White House will complicate the picture because it plans to move money from the budget account set aside for overseas military operations into the Defense Department’s day-to-day, base budget. That would break the budget caps by the largest amount since they were put in place in 2011 and require another congressional spending deal — of massive scale.
And if Democrats win back the House of Representatives, such a deal becomes that much harder. That’s where the Budget Control Act (Public Law 112-25) comes in.
So, “the picture for the 2020 budget is not pretty,” said Frederico Bartels, a defense policy analyst with the conservative Heritage Foundation.
The 2011 Budget Control Act was meant to curb discretionary spending to stem high deficits. A Republican-held House and the Democratic Obama administration agreed on the budget-cutting mechanism known as sequestration, where across-the-board automatic spending cuts would kick in if lawmakers failed to stick to the annual funding caps.
Those caps remain in place until fiscal 2021, but they have been adjusted upward in congressional budget deals every year since the budget act was enacted, with the exception of fiscal 2013. Those deals increased both defense and domestic caps, in two-year increments.
The national defense cap, which includes the Pentagon and nuclear weapon-related programs in the Energy Department, totaled $647 billion for 2019. It’s set at $576 billion in 2020 and $590 billion in 2021.
The coming collision is illustrated by the gap in fiscal 2020 expectations. Plans are to request $713 billion for national defense, according to documents from the White House Office of Management and Budget. But that would be $137 billion over the $576 billion cap, and would require the biggest cap adjustment yet.
The Pentagon’s share of the 2020 cap would be about $549 billion under current law, according to the Congressional Research Service.
Aside from the caps, the White House Office of Management and Budget so far projects no growth for the defense budget once inflation is taken into account, while the Pentagon’s own numbers show only slight increases for modern weapons procurement and an actual dip in planned research spending.
The Pentagon since 2011 has managed its way around the caps in part through use of the Overseas Contingency Operations fund. Money in that budget bucket doesn’t count against the caps. While the OCO originated from supplemental emergency spending requests the Pentagon sent to Congress to pay for the Afghanistan and Iraq wars, the fund’s drawn increased criticism that it’s morphed into a slush fund for day-to-day defense activities instead.
Now the Trump administration plans to fold most of OCO into the regular budget. OMB budget projections submitted with the 2019 budget request show a $53 billion transfer into 2020 of a planned $73 billion in OCO funds and a $45.8 billion transfer in 2021.
Over Cap by $132 Billion
The Pentagon’s proposed 2020 budget of $681 billion includes the $53 billion in recurring war costs. That means the Pentagon’s own topline is a hefty $132 billion over its portion of the defense cap. In contrast, Congress this year raised national security caps for fiscal 2018 and 2019 by $80 billion and $85 billion respectively.
Inclusion of war spending “always makes it a complicated conversation,’’ Pentagon Comptroller David Norquist told reporters Oct. 3.
“It’s going to be a heavy lift,’’ Deputy Defense Secretary Pat Shanahan added.
“We have tried, wanted to move more of the recurring OCO cost into the base budget for several years and part of the reason that was so difficult was because you had budgets going down, so that made it even harder,” Chairman of the House Armed Services Committee Mac Thornberry (R-Texas) told reporters Sept. 25.
Transferring those recurring costs into the regular budget “makes sense,” said Thornberry. “It makes for more predictable budgeting, but it’s all about what happens on the topline.”
Already, the Army is considering moving $43.3 billion from OCO funding into its regular budget between 2020 and 2024, according to two people familiar with the planning who asked not to be named because plans aren’t official.
The nation’s top military leaders, General Joseph Dunford, chairman of the Joint Chiefs of Staff, and Defense Secretary Jim Mattis have said the defense budget needs to grow at least 3 percent above inflation annually.
Still, the Trump administration’s budget blueprints are “at odds” with Mattis’s and Dunford’s outline, according to Byron Callan, a defense analyst for Capital Alpha Partners LLC. “The OMB plan showed 0% real growth up through FY’ 23,” he said. “This looming gap raises the issue of what may get cut.”
The overall government budget picture won’t be helping things. When the budget act was put in place, the deficit was $1.3 trillion as government receipts slowly recovered from the 2007-2009 recession. The Congressional Budget Office in April projected the 2019 deficit to be $981 billion, even though the economy has continued to perform well.
Without inflation, the Pentagon budget has made out well since the Sept. 11, 2001, attacks, more than doubling in size nominally. In 2001, defense spending totaled $306.1 billion, according to the CBO.
Modest Modernization Picture
The Pentagon’s planned modernization budgets through 2023 also present a modest picture that doesn’t match the Mattis-Dunford goals. The Pentagon for fiscal 2019 requested a base procurement budget without war spending of $131.2 billion. It’s estimated at $132.1 billion for 2020 and $137.6 billion in 2021.
“Once you remove the” war funding totals “you will see that the procurement funding levels increase each year over the fiscal 2020-2023 time period,” Pentagon Comptroller spokesman Chris Sherwood said in an email.
That’s about 6 percent total real growth from 2019 to 2023 but only about 1.4 percent compound annual growth year over year, according to Bloomberg Government senior defense analyst Robert Levinson.
It’s a bleaker picture for projected research and development spending, which Mattis and his new research and engineering chief Michael Griffin, are counting on for major weapons breakthroughs in cyber, directed energy and hypersonic weapons.
The Pentagon requested $90.6 billion of non-war research and development for fiscal 2019. It forecasts $89.9 billion in 2020, $90.7 billion in 2021, $87.4 billion in 2022 and $85.6 billion in 2023. “Research and development real spending is dropping,” Levinson said. The inflation-adjusted year-to-year difference between the fiscal 2019 request and fiscal 2020 projection drops about 2.7 percent, for example.